7 Indicators for DeFi Project Investment

Originally published on Twitter on August 16, 2020

Read on to learn why each indicator matters and how to evaluate the strength of each one. 

1. Total Value Locked / Fully-Diluted Market Cap

Here’s why: Protocols with more value locked should be able to capture more value.

Rule of thumb: number = better

DIY: DeFi Pulse & Coin Gecko

2. Price to Sales (aka Marketcap / Revenue)

Here’s why: DeFi protocols that sustainably capture revenue have better long-term prospects.

Rule of thumb: ↓ number = better

DIY: Token Terminal

3. % of Token Supply on Exchanges

Here’s why: Useful for understanding float dynamics (i.e. maximum sell pressure)

Rule of thumb: ↓ number = better

DIY: Nansen

4. User Growth (aka Unique Address Growth)

Here’s why: Useful indicator for determining product-market fit.

Rule of thumb: slope = better

DIY: Dune Analytics (start with this example dashboard)

5. Token Balance Change on Exchanges

Here’s why: When tokens move onto exchanges, there is a high likelihood of sell activity.

Rule of thumb: exchange balance = better

DIY: Nansen

6. Non-Speculative Usage

Here’s why: Looking at the number of daily transactions not related to speculation (trading) is a great way to understand how much a protocol is actually being used for its intended purpose.

Rule of thumb: number = better

DIY: no one-stop shop to view this yet!

7. Liquid Inflation Rate

Here’s why: investors should be aware of potential dilution and deeply understand a project’s token economic model

Rule of thumb: None – not all inflation is bad.

DIY: Messari Crypto

More Indicators

Here is some of the best additional feedback I’ve received about risks and other investment considerations.

@PhABCD on Twitter

@night_ivy on Twitter  

@CruzerDefi on Twitter

A Grain of Salt

Finally, an important note: DeFi indicators are not one-size-fits-all. These indicators can be gamed (especially during bull markets).

If you want to learn more DeFi fundamentals, subscribe to my crypto analytics newsletter Our Network.


Originally published on Twitter on August 16, 2020